New legislation to help farmers manage tough times
14 September 2016
The Coalition Government have passed a new legislation delivering on a key Ag White Paper initiative to strengthen the Farm Management Deposit (FMD) scheme, enabling farmers to better manage during periods of uncertainty.
The key changes are:
- Double the deposit limit from $400,000 to $800,000
- Allow financial institutions to offset FMDs against other farm debt
- Allow early access to the deposit in times of severe drought
The FMD scheme is designed to enable eligible primary producers to set aside pre-tax income from primary production in years of high income, which they can draw on in future years when they need it, such as for restocking or replanting when conditions start to improve.
The scheme assists primary producers to deal more effectively with fluctuations in cash flows. It is designed to increase the self-reliance of Australian primary producers by helping them manage their financial risk and meet their business costs in low-income years by building up cash reserves.
The changes that came into effect on 1 July 2016 will double the deposit limit for FMDs from $400,000 to $800,000, allow financial institutions to offer FMDs as farm business loan offset accounts to primary production businesses carried on either directly as a sole trader or through a partnership (but not for loans through a trust) and re-establish early access provisions in times of severe drought without impacting tax treatment.
We are aware that only very few of the financial institutions are providing the ability to offset the FMDs against other farm loans. We are hopeful that more banks will provide this facility in the near future and suggest speaking with your local bank manager to check if your bank provides this facility.
Ben Calder, Boyce Dubbo Director, said “These amendments, originally announced as part of the Agricultural Competitiveness White Paper, will allow farmers greater flexibility in managing and accessing their own funds when they're needed, as well as improving cash flows.”
If you would like more information on FMDs and how these may assist you and your primary production business, visit the ATO website here, or contact your local accountant.